Optimal Capital Utilisation in British Manufacturing Industry

Abstract

The study of capital utilisation has occupied an increasingly important place in the literature on both the production function and factor demand models, which focus on the relationship between output (itself a per period flow) and the flows of various factor services consumed in the production process. In such models the associated flows are specified for a given period, but the time at which the factor services are consumed in the production process within the period are not considered to be important. To ignore variations in the rate of input flows is to ignore a central technical characteristic of the production process. It may be conceivable that the firm can modify the number of employees required to man a particular machine, at least within certain limits, but it seems unlikely that the vast majority of machines can be left to work unmanned for any substantial period of time. In contrast with the production and employment function literature, the timing of input flows has been a central concern of the capital utilisation literature, but the theories have tended to be simplistic and have not been incorporated into production and employment models.

We would like to thank our colleagues at Loughborough University and at Warwick University who have taken the trouble to comment on earlier drafts of this paper. We would also like to express our gratitude to the European Foundation for the Improvement of Living and Working Conditions, which funded some of our early research in this area. Last, and not least, we wish to thank the organizers for allowing us to present the ideas contained in this paper before a distinguished audience.